Which of the following best defines an equity option?

An equity option is best defined as a right to buy or sell an asset at a set price, specifically a stock in the context of equity options. This definition encompasses both call options, which give the holder the right to purchase a stock at a predetermined price (strike price) before the option expires, and put options, which grant the holder the right to sell a stock at the strike price. This flexibility allows investors to hedge against market fluctuations or speculate on stock price movements without directly buying or selling the underlying stock itself.

Understanding equity options is crucial because they are used widely in investment strategies. Unlike other choices, such as types of stock sold at a discount, bonds that pay dividends, or loans secured by corporate stock—none of which encapsulate the definition or characteristics of equity options—this definition highlights the fundamental nature of trading rights within the stock market.